Madoff with the Money (4 page)

Although the Madoff scions failed to make an appearance at the Christmas bash, Bernie, Ruth, and Peter were in attendance. Bernie needed to keep up appearances, even as the end neared.

One longtime employee, William Nasi, who had been Bernie's personal errand boy and messenger beginning in the late 1960s, perceived a change in “the boss's mood” compared to Christmas parties past.

Another veteran Madoff employee, Amy Joel, whose late father, Martin J. Joel, had been a trusted friend and colleague of Bernie's and whose surviving family would be one of those financially wiped out, notes that Bernie always rented fabulous places for the Christmas party. “He always did it great, and it cost him a pretty penny,” she says. Like Nasi, Joel agrees that Bernie's mood was far more somber at the 2008 party.

Meanwhile, the Madoff employees—the traders, the secretaries, the computer guys, everyone—were all having a festive time, though a bit less joyful than in past years.

“The mood was a little bit more somber because obviously the economy was going down the toilet,” observes Astuto, who had joined the Madoff organization as the secretary and personal assistant to Peter's glamorous fashionista daughter, Shana Madoff, a lawyer, the company's compliance officer, and a divorcee who had recently married a former SEC official. Shana, who was pregnant, had arrived at the party late and looking unnerved.

“We all knew that things were not going well in the world. And the Madoffs, Bernie and Ruth, weren't around as much at the party as they usually were,” continues Astuto. “Bernie, Ruth, and Peter didn't seem quite in a party mood. Normally, especially Peter, you'd see him circulating. He'd come around to everybody, laughing and joking, but not this time. He usually had his wife, Marion, with him. But she didn't come because he said she had a headache.

“I saw Bernie and Ruth in the food line and I wished them a happy holiday and I asked them where Mark and Andy were. Ruth said Mark's wife, who was pregnant at the time, wasn't feeling good, so she wasn't sure they were going to make it, and Andy was running late because of his girlfriend. I said, ‘Oh, okay,' but they never showed up, which was a little odd.”

Bernie's personal secretary of a some 20 years, Eleanor Squillari, a good-looking, tough-talking, 50-something Staten Islander with a snarky manner, was enjoying the party, but she had been seeing changes in Bernie's physical and emotional makeup as the end drew near. In the office he seemed in a trance. Once strong and dominating, his voice had become “almost inaudible. . . . If he wasn't staring into space, he was looking down, working on figures.” She told some of her confidantes in the office that he appeared at times to be “in a coma.” Under intense stress and anxiety, Bernie was taking medication for high blood pressure, and sometimes had such intense back pain that he was forced to lie on his back on the floor of his office.

When others in the office asked if the boss was okay, Squillari would tell them no, quickly adding, “But he's not dead,” at least that's what she told
Vanity Fair
.

Squillari was to Bernie what Rose Mary Woods was to President Richard “Tricky Dick” Nixon: She was the secretary and gatekeeper who also was the keeper of the flame and the keeper of the boss's personal, intimate secrets. Once a Madoff investor, she had taken her money out some years before, or she would have lost it all.

Still, everyone except for the grim-appearing Madoffs were having a fun time at the party, and better yet the annual bonuses were due soon.

Rosa Mexicano was jumping that night.

“It was a great blast,” Bill Nasi thought at the time. But looking back several months later, he compares those hours of fun to the hours before another immense and historic tragedy.

“It was like dancing on the foredeck of the
Titanic
before it hit the iceberg. For us, it hit the iceberg the next day.”

Around 8:30 A.M. on Thursday, December 11, Theodore Cacioppi, an FBI agent, along with a partner, arrived at the chic and exclusive prewar cooperative apartment building at 133 East 64th Street, a short stroll from Central Park, showed his identification to the doorman, walked through the conservative lobby with its leather chairs and an orchid in a vase—the orchid was Ruth's idea (the Madoff offices always had fresh orchids on display)—and took the elevator up to the two-level penthouse, the Madoffs' 4,000-square-foot, $7 million aerie filled with great art and priceless antiques.

With just two apartments on each floor—it was that elegant a building—the feds easily found the Madoffs' door. More visible tenants inhabited the co-op, such as
Today
show co-host Matt Lauer, who would later complain about his loss of privacy in having to weave his way through the small army of reporters staking out the Madoffs in order to get to his apartment.

Cacioppi, who had been with the Bureau for six and a half years and had been “personally involved” in looking into allegations against Bernie, knocked on the door, but the doorman had already telephoned up, alerting the Madoffs to their early-morning visitors. Bernie, wearing a pale blue bathrobe and slippers, had told him they were expected.

At the moment the FBI agents walked into the foyer of the Madoff apartment they already knew that Bernie had admitted his crimes to several close associates, according to Agent Capiocci's sworn complaint and deposition that was filed with the U.S. Magistrate Judge for the Southern District of New York, Thomas F. Eaton, on the day Bernie was booked for fraud. The close associates, listed as three “senior employees,” were known to be his sons and his brother. Peter was told first, and then Mark and Andy—purportedly on the day of the Christmas party at which they were no-shows. Their attorney, Flumenbaum, of the prestigious Paul, Weiss, Rifkind, Wharton & Garrison firm, asserted that the brothers had no knowledge of their father's criminal activity before he informed them the day of the party.

Beginning in early December, according to Capiocci, Bernie had revealed that he had been running a “separate” investment advisory business for clients that was not part of the Madoff firm's trading and market-making activities, and that he had kept the financial statements for that operation “under lock and key.” Bernie, who appeared “to have been under great stress,” disclosed “he was struggling to obtain the liquidity necessary to meet requests for approximately $7 billion in redemptions.” Bernie said he “wasn't sure he would be able to hold it together.”

At a subsequent meeting at his apartment he informed his associates—his sons—that his investment advisory business was “a fraud,” that he was “finished,” that he had “absolutely nothing,” that “it's all just one big lie,” and that he was running “basically, a giant Ponzi scheme,” and “had for years been paying returns to certain investors out of the principal received from other, different investors,” according to the FBI agent's report.

Bernie stated that “the business was insolvent, and that it had been for years,” and he estimated that “the losses from this fraud to be at least approximately $50 billion.” Bernie claimed he had $200 million to $300 million left and he “planned to use that money to make payments to certain selected employees, family, and friends.”

He also stated he was going to give himself up to the authorities.

Earlier in the year he had claimed in a government filing that he managed $17.1 billion in assets for just 23 clients, which would turn out to be a lie as enormous as his crimes. In fact, as investigators would determine, there were thousands of investors over the years and as much as $65 billion of their money.

Facing Bernie in his richly appointed apartment, Agent Capiocci said, “We're here to find out if there's an innocent explanation” for what had been alleged. Bernie's response was short and not very sweet. He said, “There is no innocent explanation.” According to Capiocci, “Madoff stated, in substance, that he had personally traded and lost money for institutional clients, and that it was all his fault. Madoff further stated, in substance, that he ‘paid investors with money that wasn't there'... that he was ‘broke' and ‘insolvent' and that he had decided ‘it could not go on' and that he expected to go to jail.”

Bernie, the one-time power-broker trader, one of the pioneers of modern Wall Street, a “pillar of finance and charity,” as the
New York Times
described him, was then placed under arrest—just hours after he celebrated Christmas with his employees. At the FBI's office, he called his lawyer, Ira Sorkin. “Hi, it's Bernie, I've just been arrested and I'm handcuffed to a chair.”

At his arraignment that day, wearing a white striped shirt, no tie, and dark gray slacks, he was initially charged with a single count of securities fraud, a charge that would later escalate. For a time he would remain free on $10 million bail and confined to his fancy apartment—home detention with electronic monitoring—a judge's decision that infuriated Bernie's victims and raised questions in the public's mind about the justice system, a system where common criminals without money or reputation are immediately incarcerated for far lesser crimes because they can't afford to post bail.

A spokesman for the SEC, which would come under extreme congressional and media criticism for ignoring red flags in the past about Bernie's criminal activities, called his fraud “stunning” and “of epic proportions,” and the regulatory agency swiftly filed separate civil charges.

Like a tsunami, the news of the arrest of a Wall Street legend, a former chairman of Nasdaq, a noted Jewish philanthropist, spread quickly. On CNBC, the business channel with the stock crawl that was a daily habit for millions from Wall Street to Main Street, the shocking, mind-boggling news was flashed:

“If you are working on a trading desk, stop what you are doing for one second before you walk out the door and clean your desk out for the day,” announced anchor Michelle Caruso-Cabrera.

“Bernie Madoff has been arrested.”

By day's end, the Madoff offices had become a crime scene—invaded by FBI agents, federal prosecutors, probers from the SEC, and forensic accountants who got access to everything—the computers, the laptops, the cell phones, the e-mail.

Over the next few months into 2009, accounts of the crimes of Bernie Madoff would quickly unfold, and the tragic stories of his victims would become public.

Desperately seeking to end his controversial house arrest, revoke his $10 million bail, and put him behind bars, prosecutors went to court with startling evidence that Bernie and Ruth had sent some of the fruits of his crimes in secret packages to relatives and friends over the Christmas 2008 holidays. The booty, which was reportedly worth more than $1 million, included gifts to his brother Peter, sons Mark and Andrew, and other relatives. These “swag bags,” according to investigators, ranged from inexpensive $25 cuff links and mittens that cost $200 to eye-popping bling that included diamond-encrusted Cartier and Tiffany watches, diamond brooches, diamond and jade necklaces, and jewelry fit for royalty or a rapper. Later confiscated by the prosecutors, the gifts had been sent by Bernie after he had pledged to the SEC that he wouldn't dispose of any assets. His lawyers claimed it was all one big mistake, and the judge declined to revoke bail and send him to jail.